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Emerging Markets : Investors Get Comfortable

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Investor confidence in Brazil continues to grow, as witnessed by the sovereign’s successful return to international capital markets on October 6 with a $1 billion 15-year global bond is-sue via JPMorgan and Citigroup. The deal, priced at 97.78 with an 8.875% coupon, to yield 9.15% or 492 basis points over US treasuries, had to be upped from an initial $750 mil-lion on account of strong demand. The book for the deal was estimated as high as $5 billion. While the issue was supported by a string of Brazil sover-eign rating upgrades, it allowed the government to take ad-vantage of low interest rates and its reduced risk premium to get a head start on its $6 billion financing requirements for 2005. Brazil had raised €1 billion in September in a deal that reopened the door for Latin American speculative-grade cred-its shut out after Argentina’s massive end-2001 debt default. The equities market has also benefited from the surge in in-vestor demand. CPFL Energia, a Brazilian holding company with integrated electricity activities, became the latest listing on the São Paulo stock exchange. The company made its debut in Oc-tober with an 818 million real ($289 million) IPO composed of 47.5 million shares (83.3% primary issue), of which 60% was bought by international investors as ADRs on the NYSE. An es-timated 80% of the shares were sold to 150 institutional in-vestors. The deal was led by Merrill Lynch and Banco Pactual. During October’s IMF meetings in Washington, Brazil called for a precautionary financing facility that would give countries access to fast cash in the event of a capital accounts crisis. The proposed credit line would be available only for countries with positive track records in fiscal and monetary policy. While market analysts feel the IMF is unlikely to approve such a fi-nancial safety net at the moment, Brazil’s proposal triggered a debate over cumbersome IMF loan requirements for coun-tries in a pinch. Brazil does not plan to renew its $14 billion IMF stand-by accord when it expires in March.